QUESTION on credits at closing... - Posted by Nate


Posted by JPiper on January 29, 1999 at 01:50:07:


Thanks for the informative post. I was quite surprised at the 50% number that you cited.

Personally I wouldn’t have a problem with escrowing deposit money anyway. Now interest on the money…ugh!

Thanks for enlightening me. I guess the states I have been in are behind the curve.



QUESTION on credits at closing… - Posted by Nate

Posted by Nate on January 27, 1999 at 16:06:35:

Quick question:

Are sellers required by law to prorata rents for the remainder of the month of closing and give those to the buyer? Or, is this something that must be negotiated at closing?

I’m curious, because in presenting my offer, I’m afraid to show all the rent and deposit credits. I have a feeling the seller might balk at my offer if he also sees all the credits they will have to give me. I would prefer dealing with those AFTER we have come to a bottom line agreement.

Thanks in advance for the help…


Re: QUESTION on credits at closing… - Posted by Eric (NH)

Posted by Eric (NH) on January 28, 1999 at 22:45:14:

I recently purchased a ten-unit building, with a closing date of the eleventh of the month. One week before the closing, the closing attorney’s paralegal told me that the owners prefered to handle the pro-rata rent and security deposit transfer outside of closing, meaning that they would have bank checks for these amounts. Although I balked a little, since this meant that I had to bring extra money to closing, (although I’ld be getting it right back!), she stated that this was not uncommon, at least in my neck of the woods. While I did have the funds to close, I’m glad I was told ahead of time, since I needed time to deposit and clear a check from an out-of-state money market. Always be prepared!

Eric (NH)


Re: QUESTION on credits at closing… - Posted by JPiper

Posted by JPiper on January 28, 1999 at 01:26:48:

Your contract should specify the disposition of the rent and deposits. In my contract my addendum will state that rents are to be prorated as of the closing dates and credited to buyer, and all deposits are to be credited to buyer through closing.

My contract is also contingent on the owner providing all tenant information and history, and leases for my inspection and approval.

I would definitely have this in the contract, particularly if you are expecting some resistance. Otherwise the issue isn’t covered in the contract. I wouldn’t find it necessary to itemize the rents and deposits in the contract.



Re: QUESTION on credits at closing… - Posted by phil fernandez

Posted by phil fernandez on January 27, 1999 at 17:17:00:


In most if not all purchase and sales agreements I have seen there is a clause in the fine print stating that all rents and expenses are to be prorated as of the day of closing. No need to alarm the seller with a long list of itemized credits.


Re: QUESTION on credits at closing… - Posted by Sue (NC)

Posted by Sue (NC) on January 27, 1999 at 17:11:49:

If the contract doesn’t address the issue, it would work out as follows:

  • the rent from the day you own the building forward is yours. if he collected it in advance (as is customary with RENT) he owes you for the pro rata share… (if this were going to be your residence, you would expect the seller to move or pay for staying in your house- it’s just the same with tenents)

*the security deposits belong to the tenents, and as the new owner, they should transfer to you for safe keeping. They aren’t really yours, despite people who say that you can use them as downpayment. Not saying that it can’t be done, but well, I know it’s not legal here, and I suspect it’s not legal in most places.

  • but hey, everything’s negotiable…


Re: QUESTION on credits at closing… - Posted by JPiper

Posted by JPiper on January 28, 1999 at 01:18:01:

Just so that you’re aware of it, every state I have acquired property in (4) the security deposits are credits to the buyer on the settlement statement and therefore offset the cash requirement at close.

The deposits are still controlled by the lease agreement and state law. Therefore they must be returned eventually to the tenant assuming no damage.

This process is completely legal in those particular states. My guess would be that NC is somewhat unique if security deposits are not handled in that fashion.



Re: QUESTION on credits at closing… - Posted by Sue (NC)

Posted by Sue (NC) on January 28, 1999 at 20:55:34:

I guess I wasn’t as clear as I should have been…

The closing statement WILL show these items as an credit to the buyer even here in NC (which has the net affect of reducing the downpayment required). But the assumption is that the buyer transfers those funds to an escrow account after closing, instead of mingling those funds with his own money until a tenent moves out.

Many other states (roughly half, but I’m looking at 1995 stats) have similar requirements that tenent security deposits be held in escrow. Some go as far as to expect the landlord to pay interest on the money. And even if the state does not mandate escrowing deposits, the municipality might. And many states that do not require escrow of funds still make it clear that the money belongs to the tenant until any damages occur.

With landlords losing more and more each year, I wouldn’t be suprised if the number of states requiring escrow accounts for tenant security deposits were on the rise.